Fixed term employment contracts

As flexible ways of working have increased in popularity over recent years by both employers and employees, different types of employment contracts have become more common. One of the forms of contracting which has risen in prominence is the fixed term employment contract.

Create your Contract of employment

Answer a few questions. We'll take care of the rest

What is a fixed term contract?

As the name suggests, fixed term employment contracts are designed to cover a specific period of time. Unlike open-ended standard employment contracts, fixed term contracts have an end point - whether a specific date or the point at which a project has been completed - upon which the employment relationship automatically ceases, unless a new agreement is reached. Some of the situations in which a fixed term contract will be suitable include:

Seasonal work - where there is a peak period which requires more workers compared to off-peak times.

Project work - when either a larger workforce is required to complete the project or the skills of specialist employees are needed for a limited time.

Maternity cover - this is usually fixed term but sometimes extended, often resulting in the fixed-term employee being taken on permanently.

Agency workers, apprentices and students on a work experience placement are not considered to be fixed term employees.

What rights do employees have in a fixed term contract?

Employees on fixed term contracts should not be treated any less favourably compared to their permanent counterparts, unless there is an 'objective justification' (ie a good business reason) to do so. They should receive the same (or equivalent) benefits package, pay and conditions. If they have worked for at least two years for the same employer under a fixed term contract, they obtain the same redundancy and unfair dismissal rights as permanent employees. For further information read Unfair dismissal. Furthermore, they should be given information about permanent vacancies in the company.

What happens once a fixed term contract comes to an end?

Notice does not have to be given to end a fixed term contract at the agreed end point; the contract terminates automatically.

Early termination

If an employer wants to end a contract early, appropriate wording must be included in the contract to allow for early termination. Minimum notice of:

one week if the employee has worked for at least one month; or

one week for each year if the employee has worked continuously for at least two years must be provided

Similarly, employees must also provide a minimum of one week’s notice if they have worked for at least one month. In either case, longer minimum notice periods may be stated in the contract.

Continuation

If employees continue working beyond the end date of a fixed term contract without formal renewal, this is considered an implied agreement to extend the fixed term. If the employment continues for at least four years, a fixed term employee will automatically become a permanent employee (subject to collective agreements or a good business reason which prevents this).

Unfair dismissal

If a contract is not renewed this is considered as dismissal; if a fixed term contract lasts for at least two years then the employer will be required to demonstrate a fair reason for not renewing the contract, as the employee will have gained unfair dismissal rights.

What are the pros and cons?

Some of the benefits of fixed term contracts include more flexibility for both employers and employees and the ability for a company to control budgets according to its workforce requirements.

However, fixed term positions are often not as attractive as permanent contracts to employees and subsequently harder to fill. Also, if a fixed term contract needs to be ended early by the employer and a provision has not been made in the contract, this can lead to financial penalties.